Shareholders Accuse Caterpillar of Tax Fraud

CHICAGO (CN) – A class of Caterpillar shareholders claims the machinery manufacturer used foreign subsidiaries to avoid paying billions in taxes and then lied about its conduct to prevent a drop in stock price.

The lawsuit was filed in Chicago federal court on Friday, just a day after the Peoria, Ill.-based company was raided by federal law enforcement officials.

The complaint cites a Peoria Journal Star report, which claimed the raid “appears to stem from revelations about the company’s tax strategy … [that allegedly] shifted profits overseas and to offshore shell companies to avoid paying more than $2 billion in U.S. taxes.”

Caterpillar’s stock fell over 4.28 percent on Thursday following news of the raids, according to the complaint.

Lead plaintiff Jacob Newman says Caterpillar began misleading investors when it released an annual earnings report in February 2013 and has continued to release fraudulent quarterly earnings reports up to and including the 2016 year-end report.

The company’s alleged tax fraud was brought to light in a 2009 wrongful termination lawsuit filed by former Caterpillar employee Daniel Schlicksup, who settled in 2012.

According to the Journal Star article quoted in the shareholder suit, “Schlicksup alleged the company sold and shipped spare parts globally from its warehouse in [Illinois] while attributing at least $5.6 billion of profits from those sales to a unit in Geneva, Switzerland. This scheme, which operated from 2000 to 2009, was known as the ‘Swiss structure.’”

Additionally, “a different strategy, the ‘Bermuda structure,’ allegedly involved shell companies that had no business operations returning profits to the United States without paying taxes on them.”

The proposed class seeks damages for violations of the Securities Exchange Act. It is represented by Louis Ludwig of Pomerantz LLP in Chicago.

A Caterpillar spokesperson said the company does not comment on pending litigation.